Mahoney v Mahoney [2017] NZHC 2822 (17 November 2017)

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IN THE MATTER	of the Property (Relationships) Act 1976
BETWEEN	KERYN LOUISE MAHONEY Plaintiff
AND	DONALD CHARLES MAHONEY First Defendant DONALD CHARLES MAHONEY and PATRICK CHARLES STUART as trustees of the Mahoney Family Trust Second Defendants

Hearing:	15 March 2017
Appearances:	D A T Chambers QC and J R Hosking for Plaintiff S R Jefferson QC and K M Lellman for First Defendant
_Judgment:	_{17 November 2017}

This judgment was delivered by Justice Peters on 17 November 2017 at 9 am pursuant to r 11.5 of the High Court Rules

Mr Mahoney, the first defendant, for orders directing separate trials (“application”). These are my reasons for doing so.

[3] The application is made pursuant to r 10.15 High Court Rules, which provides:

The court may, whether or not the decision will dispose of the proceeding, make orders for—

(a) the decision of any question separately from any other question, before, at, or after any trial or further trial in the proceeding; and

[4] The parties, Mrs Mahoney and Mr Mahoney, entered into the agreements referred to in the application following their separation in December 2012. The agreements are expressed to be made pursuant to s 21A Property (Relationships) Act

1976 (“PRA”). Amongst other things, Mrs Mahoney seeks in this proceeding to have the agreement of 29 May 2013 (“May agreement”) set aside. The other agreement is referred to as the February agreement.

[5] Mr Mahoney seeks an order that issue, that is whether the May agreement should be set aside, be determined in a first trial, with any other remaining causes of action determined in a second trial. Mr Mahoney submits that it will be more efficient and expeditious to proceed in this manner. Mrs Mahoney submits that course will only serve to delay resolution of all issues, will increase the parties’ costs, and that all issues should be resolved in one trial.

[6] The second defendants, being the present trustees of the Mahoney Family Trust

[7] Mr and Mrs Mahoney had commenced a de facto relationship by August 1994 and they married in May 1999. As I have said, they separated in December 2012. They had one child, born in 2001. Mr Mahoney had previously been married, Mrs Mahoney had not.

[8] Throughout their relationship, Mr and Mrs Mahoney operated a successful business, Supacrete Concrete Limited (“Supacrete”). Supacrete was incorporated in

1986 and commenced trading in December 1988. Mr Mahoney owned the shares in Supacrete before the parties’ relationship commenced. Aside from the shares in Supacrete, each party had few assets at the time the relationship commenced.

[9] Mr Mahoney settled the trust on 1 April 1997. On doing so he sold the shares in Supacrete to the trustees for $429,283.

[10] At all material times the discretionary beneficiaries of the trust included

Mr and Mrs Mahoney, their child, and Mr Mahoney’s children from an earlier relationship (“beneficiaries”). By the date of separation, and as at the date of the February and May agreements, the trustees were Mr Mahoney, Mrs Mahoney,

[11] By the time of separation, the trustees owned commercial and residential property, a motor launch, a marina berth as well as the shares in Supacrete and another company, Chinook Bulk Haulage Limited. It is common ground that, in the first instance, these assets derived from the parties’ joint endeavours, however they came to be owned by the trustees. By comparison, on separation, the parties’ relationship and separate property within the meaning of the PRA was modest. It comprised three residential properties of which Mrs Mahoney was the registered proprietor (“residential properties”), some shares, motor vehicles or bikes, household chattels and personal effects.

[12] The parties attended mediation on 7 and 8 February 2013. Each was represented. Mr Cooney attended briefly at the outset of the mediation and Mr Grace also attended for part of the mediation.

[13] After the mediation, the parties executed the two agreements referred to in the application, dated 8 February 2013 (“February agreement”) and the May agreement.

[15] The parties also agreed that they would consider how best to progress the division of “other property”. Failing agreement, all other items of property were to be placed on the market for sale, and Supacrete and the commercial premises it leased (owned by the trustees) were to be put on the market for sale by tender.

[16] The May agreement was executed following further discussions between the parties, including a meeting which they and their legal advisers attended on 9 May

2013. As I have said, Mrs Mahoney now seeks to have the May agreement set aside. No particular issue is raised at present as to the February agreement.

(c) That two further payments would be made to Mrs Mahoney in respect of the balance of her relationship property entitlement as against

Mr Mahoney, or the trustees or any companies. These payments were of $159,000 in respect of her employment with Supacrete and

2015. Either Mr Mahoney or the trustees were to pay interest on that sum from 1 April 2013 at 7 per cent per annum.

(d) Mrs Mahoney would resign as a trustee and renounce all her rights and entitlements as a beneficiary.

(e) The agreement was made in full and final satisfaction of any claims and was to be regarded as a “full and final settlement of all claims” either party might have against the other, under the PRA or otherwise, in respect of property for which provision had been made in the agreement, including claims under pt 6 (which includes s 64 – see below) Family Proceedings Act 1980 (“FPA”).

(f) The agreement was in settlement of all or any rights, claims or demands the either may have against the other whether under common law, statutory law, the law of equity or otherwise.

[18] Although not parties to the agreement, by resolution of 30 May 2013, the trustees resolved to “enter into, perform and do all things necessary to give effect to the [February and May agreements] and the provisions contemplated [therein]”.¹

[19] By deed dated 4 June 2013, Mrs Mahoney renounced any ongoing entitlement as a beneficiary of the trust and relinquished any claim she might have, then or in the future. This renunciation was to take effect “on settlement of her agreed entitlement” under the agreements.

[20] By deed dated the same date, Mrs Mahoney agreed with immediate effect to retire as a trustee.

[21] It is common ground that the requirements of s 21F were met in relation to the February and May agreements, that is each party signed the agreements, each had independent legal advice prior to signing, the signature of each was witnessed by a lawyer and the lawyer concerned certified that he or she had explained the effect and implications of the agreement before the document was executed.

[22] The May agreement has not been fully implemented. In November 2014, Mrs Mahoney cancelled the agreement, or purported to do so. The $1.9 million referred to above has not been paid to her, although as I understand it the interest payments have been made.

[23] In September 2013, Mrs Mahoney learned that, shortly after the mediation on

7 and 8 February 2013, Supacrete through Mr Mahoney, its sole director, had commenced negotiations with subsidiaries of Fletcher Building Limited (“FBL”). These negotiations concerned future business arrangements between the two and culminated in agreements that were in final form shortly before the May agreement and executed immediately thereafter (“Fletcher agreements”).

[24] There is no dispute that Mr Mahoney did not inform Mrs Mahoney of the negotiations with FBL nor of the Fletcher agreements, and that she was ignorant of them at the time she executed the May agreement.

[25] Mrs Mahoney’s case is that the Fletcher agreements increased the value of the shares in Supacrete and that she would not have executed the May agreement, at least on its existing terms, had she known of the matter.

[26] There is some dispute on the evidence as to when the other trustees learned of the negotiations with FBL and the Fletcher agreements and whether or not they were obliged to disclose the fact of them to Mrs Mahoney. Regardless, the important matter for present purposes is that Mrs Mahoney executed the May agreement without being informed of the negotiations and she considers those negotiations were material information.

[27] In May 2015, Mrs Mahoney commenced proceedings in the Family Court at Tauranga, seeking orders as to the parties’ shares in their relationship property and for other relief.

[28] In April 2016, Mrs Mahoney also made an application for orders pursuant to s

182 FPA, on the ground that the trust is a “nuptial settlement” within the meaning and ambit of that provision.

[29] Mrs Mahoney’s two applications were consolidated and the proceedings transferred to the High Court in October 2016.

[30] Mrs Mahoney has since filed a statement of claim. The relief she seeks falls into six distinct categories.

[31] The first is that Mrs Mahoney seeks an order setting aside the May agreement, so that she may seek relief under the PRA and possibly pursue other causes of action. In seeking this relief, in reliance on s 21J(1) PRA, Mrs Mahoney contends that giving effect to the May agreement would cause serious injustice. Section 21J(1) provides:

(1) Even though an agreement satisfies the requirements of section 21F, the court may set the agreement aside if, having regard to all the circumstances, it is satisfied that giving effect to the agreement would cause serious injustice.

[32] Alternatively, Mrs Mahoney alleges that she entered into the May agreement under undue influence or duress or that the May agreement is an unconscionable bargain. Alternatively, Mrs Mahoney seeks a declaration that she was entitled to, and did, cancel the May agreement in November 2014, for misrepresentation.

15, 15A and 17 PRA, and s 32 PRA and s 64 FPA. It appears to be common ground that Mrs Mahoney will not be able to pursue this relief if she is bound by the May agreement. In summary: s 9A provides the circumstances in which an increase in the value of separate property, or income or gains derived therefrom, become relationship

property; ss 15 and 15A permit the Court to order one party to pay to the other a sum of money or to transfer property if particular circumstances exist; and s 17 provides for the Court to make orders if separate property has been sustained by the application of relationship property or the actions of a spouse. Sections 32 PRA and s 64 FPA permit the Court to make orders relating to maintenance and child support.

[34] Thirdly, Mrs Mahoney seeks orders against Mr Mahoney and the trustees pursuant to ss 44 and 44C PRA. Section 44 permits the Court to grant relief if satisfied that one party has disposed of property to a third party (the trustees) to defeat the rights of another. Section 44C permits the Court to grant relief in respect of any disposal of relationship property to trustees.

[35] Fourthly, Mrs Mahoney seeks an account of profits from Mr Mahoney and the trustees on the grounds that their withholding information regarding the Fletcher agreements was in breach of their fiduciary duties.

[36] Fifthly, Mrs Mahoney seeks a declaration that she has a beneficial interest in

[37] Sixthly, as I have said, Mrs Mahoney also seeks a declaration that the trust is a nuptial settlement within the meaning of s 182 FPA and an order that the assets of the trust be resettled on two separate trusts. Such an order can only be made, however, if it does not “defeat or vary” any agreement entered into under, inter alia, s 21A PRA.

[38] The purpose of an order under r 10.15 is to expedite the resolution of the issues between the parties. The Court’s discretion is broad, and the Court starts from the position that all matters are to be determined in one trial because usually that is the most expeditious and efficient manner in which to proceed. The burden of displacing this presumption lies on the applicant, that is Mr Mahoney. The authorities are replete with warnings that often the efficiencies that are anticipated when separate trials are ordered do not eventuate.

[39] The Court often has regard to the following criteria in considering whether or not to order separate trials:²

(a) Will there be difficult demarcation questions between those issues to be addressed at the first trial and those left for the second?

Will there be difficult demarcation questions between those issues to be addressed at the first trial and those left for the second?

[40] This requires the Court to consider the issues that arise on the separate question, those that would remain for the second hearing and, in each case, what evidence is required to dispose of the issues. It is desirable that the issues should be discrete. If they are not or there is significant evidential overlap, separate determination is far less likely to be appropriate.³

[41] Mr Jefferson QC proposes that the Court first determine all of the causes of action in [31] above and, in this way, determine whether or not Mrs Mahoney is bound by the May agreement.

[42] Mr Jefferson submits there would then be a second trial. If the May agreement is binding on Mrs Mahoney, then this second trial would be very short – say a day – and confined to Mrs Mahoney’s claim pursuant to s 182 FPA. (Mrs Chambers QC submits that second trial would also be to determine at the very least Mrs Mahoney’s

[43] If, however, the May agreement is not binding on Mrs Mahoney, then the issues to be determined in the second trial would be much more substantial and include all of Mrs Mahoney’s remaining causes of action.

[44] On Mr Jefferson’s submission, the parties would be greatly advantaged by knowing whether the May agreement is binding before they embark on the second trial. Moreover, Mr Jefferson submits that Mrs Mahoney’s substantive claims for relief under the PRA are not properly before the Court until there is a determination that the May agreement should be set aside. In this submission Mr Jefferson relies on Dunsford v Shanly, a decision of MacKenzie J, in which the Judge referred to s 21O.⁴

[45] MacKenzie J considered that a party to a contracting out agreement under, inter alia, s 21A PRA could not bring a claim for determination of relationship property issues until such agreement was set aside. The Judge said:

[26] I consider that the statutory scheme will ordinarily require that, before a relationship property claim can be brought in the face of a s 21A or s 21P agreement, the party seeking to bring that claim must first meet the hurdle of having the agreement set aside. I consider that this will conform with the principle in s 1N(d) of the Act. The inexpensive, simple and speedy resolution of issues is likely to be assisted by determining first whether the agreement should be set aside, rather than by requiring parties to engage in a relationship property dispute which they have settled. The setting aside of the agreement can properly be dealt with as a preliminary question by the Family Court. That should, except possibly in cases which may raise some particular consideration, mean that the two aspects must be dealt with separately, and sequentially. I do not consider that considerations of case management will routinely justify the substantive relationship property claim being heard before the right to bring it has been determined.

Relationship property is subject to the provisions of this Act if neither of the following kinds of agreement applies to the property:

(b) an agreement to which section 21P or section 21Q applies, or to the extent that section 21Q applies.

[48] As to Dunsford v Shanly, she submits that MacKenzie J was not referred to other relevant authority, namely Radisich v Taylor and Wood v Wood.⁵Mrs Chambers submits that these cases are authority for the proposition that the Court is willing to conduct one trial to resolve all issues, notwithstanding that an issue may arise as to whether the parties are bound to a “contracting out” agreement.

[49] As to s 21O, Mrs Chambers submits the provision is not a jurisdictional bar but rather a provision which clarifies the status of relationship property if it is not subject to an agreement made pursuant to the provisions mentioned.

[50] I consider MacKenzie J was not purporting to lay down any definitive rule as to how these matters are to be managed by the Court. The Judge clearly left open the possibility that the circumstances may favour one trial. That is apparent from the Judge’s statement as to what would “ordinarily” be required. If I am wrong in this, I prefer Mrs Chambers’ submissions as to the import of s 21O, and the approach adopted in the authorities to which Mrs Chambers referred me. The Court is often required to determine a threshold issue, such as whether a party is bound to a contract or the effect of a particular term, and I am not persuaded that the PRA inevitably requires a two- stage process when the validity of a contracting out agreement is in issue.

[51] As to matters of demarcation, Mrs Chambers submits that these are such that there should be one trial only. That is because in determining whether to set aside the May agreement, the Court will be required to hear much if not all of the evidence that would be relevant to determining Mrs Mahoney’s substantive claims.

[52] The basis for this submission is as follows. In deciding whether to set aside the May agreement under s 21J, the Court must have regard to the criteria in s 21J(4).

⁵Radisich v Taylor HC Auckland CIV-2007-404-3276, 23 March 2009; and Wood v Wood [1998] 3

(1) Even though an agreement satisfies the requirements of section 21F, the Court may set the agreement aside if, having regard to all the circumstances, it is satisfied that giving effect to the agreement would cause serious injustice.

(3) This section does not limit or affect any enactment or rule of law or of equity that makes a contract void, voidable, or unenforceable on any other ground.

(4) In deciding, under this section, whether giving effect to an agreement made under section 21 or section 21A or section

(d) whether the agreement has become unfair or unreasonable in the light of any changes in circumstances since it was made (whether or not those changes were foreseen by the parties):

(e) the fact that the parties wished to achieve certainty as to the status, ownership, and division of property by entering into the agreement:

[53] Mrs Chambers submits that, in considering s 21J(4)(c) and (d), the Court must have regard to the parties’ entitlements under the PRA, both at the time of the May agreement and at the time of the trial, in comparison with the agreement reached. The greater the disparity, if any, the more likely the Court is to find that serious injustice would result from giving effect to the agreement.⁶Mrs Chambers submits that the Court will be required to hear evidence and make factual findings on those issues that inevitably will be duplicated at a second trial, if the May agreement is set aside. That

⁶RL Fisher (ed) Fisher on Matrimonial Property (looseleaf ed, LexisNexis) at [5.82].

[54] It is clear that each counsel expects to succeed on the setting aside issue.

Mr Jefferson contends Mr Mahoney will succeed because the value of the Supacrete shares has not materially increased in light of the Fletcher agreements and that the valuation evidence filed to date confirms this. The range of values referred to in the course of the mediation were consistent with those arrived at with the benefit of knowledge of the Fletcher agreements. Accordingly, Mr Jefferson submits the information withheld in fact added nothing.

[55] Mrs Chambers submits Mrs Mahoney will prevail because, as a matter of principle, the Court will not hold a spouse to an agreement reached in circumstances where that spouse was without material information, particularly where it has been withheld. Alternatively, Mrs Chambers submits that Mrs Mahoney, fully informed, would not have executed the May agreement. She might have preferred to wait and see how matters developed with the Fletcher agreements, or insisted on greater provision, or required immediate payment to her of the sum agreed or any variation on the above.

[56] I express no view on Mrs Mahoney’s prospects. However, I do accept Mrs Chambers’ submission that, in deciding whether to set aside the May agreement, the Court will be required to hear evidence from the parties’ valuers and how, if at all, the Fletcher agreements increased the value of the Supacrete shares. I am also satisfied that much of this evidence would be relevant to Mrs Mahoney’s substantive claims if she were to succeed in setting aside the May agreement.

[57] I add one further point. An issue may arise as to whether the May agreement, and possibly the February agreement for that matter, fall wholly within s 21A PRA. Section 21A provides:

(1) Spouses or civil union partners or de facto partners may, for the purpose of settling any differences that have arisen between them concerning property owned by either or both of them, make any agreement they think fit with respect to the status, ownership, and division of that property.

[58] As I have said, the parties’ property was relatively confined at the date of separation. An agreement under s 21A must be in respect of the parties’ relationship or separate property. Some at least of the May agreement is concerned with property of the trustees. Mr Jefferson adverted to this in his submissions when he said that the parties had “looked through the trust” in reaching these agreements. That may be so but, regardless, the agreements are not confined to property falling within s 21A. Given that, it may be necessary for the Court to consider the status and effect of the February and May agreements, in so far as concerns the PRA.

[59] Although it would be open to me to order that all matters relating to the status and validity of the two agreements be determined in a separate trial, I come back to the submission of Mrs Chambers to which I referred above, namely the real possibility of duplication in the evidence and issues at both trials. This counts against granting the application.

[60] As I have said, counsel agree that a second trial will be required, even if

Mr Mahoney were to succeed at the first. The fact that a second trial is required is not determinative but, again, counts against granting the application.

[61] This requires consideration of the potential hearing time saved as well as delay to final resolution of all issues and any associated inefficiency resulting from the same.⁷

[62] I accept that the separate question has the potential to offer a saving of first instance hearing time. That is because, if answered in Mr Mahoney’s favour, many of Mrs Mahoney’s substantive claims will fall away. However, I am not persuaded that ultimately separate trials would expedite resolution of the entire dispute between the

_{parties. Even if Mr Mahoney succeeds, expert evidence is likely to be
required at both}

trials. Ideally, the same Judge should resolve all matters. All of these factors increase the potential for delay.

[64] Multiple appeals are likely to be inefficient, and to delay resolution of proceedings and enlarge the period between the two trials.⁸

[65] Given the significance of whether the May agreement is binding, it is safe to assume that the finding would be appealed by the unsuccessful party. In my view, that would be a compelling reason to defer the second trial. If the finding on the second trial were then appealed, the overall resolution of the proceedings would be delayed. This too counts against granting the application.

[66] This requires consideration of whether the proceeding is, by its very nature, ill- suited to “split trial procedure”. Some cases are best resolved within their full factual setting.⁹

[67] In this case, this final question overlaps with the matter of duplication and the desirability that the issue as to the two agreements, or just the May agreement as the case may be, be determined in light of all relevant facts. Beyond this, I do not consider this factor adds to or detracts from the application.

[68] For the reasons given above, Mr Mahoney has not discharged the burden of persuading me that I should order the separate trial proposed. I dismiss the application

_{accordingly. The parties may make submissions on costs if they are
unable to agree.}

High Court of New Zealand Decisions

Mahoney v Mahoney [2017] NZHC 2822 (17 November 2017)